Lord Turner: banks face more rules and regulation

The chairman of the Financial Services Authority (FSA), Lord Adair Turner, has
given a stark warning to Britain's banks that society still needs assurance
that a financial collapse could never happen again and that there is more
regulation ahead.

Lord Turner said threats that London's banks would move to Singapore or Hong Kong because of over-regulation in the UK were a "fantasy" and more to do with lobbying than serious decision-making.Photo: Julian Simmonds

In an interview with The Sunday Telegraph at the World Economic Forum in Davos, Lord Turner made it clear that it was time to "move on" and that the finance sector still had to rectify the problems that created the financial crisis.

The FSA chairman said that work to resolve how banks could fail without bringing down the whole sector and needing taxpayers' money was still ongoing.

He said he wanted to see a new push on regulation of the shadow banking sector after fears were raised that banking's riskier activities would simply move to the unregulated sector and continue.

On Saturday, also at Davos, Bob Diamond, the new chief executive of Barclays, admitted that the work on safe resolution of single banks would not be complete for another 16 to 18 months.

Lord Turner said threats that London's banks would move to Singapore or Hong Kong because of over-regulation in the UK were a "fantasy" and more to do with lobbying than serious decision-making.

"I think the idea that people are going to go off to Hong Kong or Singapore or Brazil to escape our capital and liquidity regimes is a complete fantasy," he said. On the issue of whether the UK was in danger of over-regulation he said: "I think the industry needs to recognise that society wants to be assured that measures that have been taken are robust enough to prevent this terrible crisis ever happening again.

"There are still important elements of the prudential regime to put in place, such as shadow banking: we have to do more work and the industry has got to accept that."

In an offer of an olive branch, Lord Turner said that he was aware that the new rules on bonus payments were complicated and that he would ensure they were applied "proportionately" and were not changed again.

He admitted that remuneration could have some influence over people working in the UK. On Friday, George Osborne reiterated his pledge to abolish the 50p tax rate.

"There could be some issues at the margin on remuneration and that is why we will apply an appropriately proportionate response," Lord Turner said.

"But we still need to implement the EU directive and we do need to shift the nature of how people are paid bonuses in the trading areas."

Lord Turner's comments are in contrast to the pleas of many leading bankers at Davos, who argue that over-regulation is a risk to global growth.

Mr Diamond said banking leaders had met senior politicians including Christine Lagarde, the French finance minister, and George Osborne to offer their "heartfelt thanks" on actions taken by central banks and governments to shore up the system.

But in a series of testy comments aimed at Mr Diamond, Ms Lagarde said: "The best way for the banking sector to say 'thank you' would be to have good financing of the economy, sensible compensation systems in place and reinforcement of their capital."

She also clashed with the Barclays chief executive when he said that the eurozone crisis had moved from being one that is "acute" to one that is "chronic": "Let's not short Europe and let's not short the eurozone."

Mr Diamond later said that he felt that the danger of the eurozone collapsing was not an issue any longer and had effectively been "taken off the table".